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Why Is McDonald's (MCD) Down 1.3% Since Last Earnings Report?

Zacks Equity Research
·3 min read

It has been about a month since the last earnings report for McDonald's (MCD). Shares have lost about 1.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McDonald's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

McDonald's Q1 Earnings & Revenues Surpass Estimates

McDonald's reported first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.

McDonald's president and chief executive officer, Chris Kempczinski, stated, "Running great restaurants is fundamental to our business momentum. We have refocused on operational excellence through our global Performance and Customer Excellence (PACE) initiative, and we've seen significant customer satisfaction improvement around the world. Amidst a challenging operating environment, customer demand for McDonald's Brand remains strong."

Earnings & Revenue Discussion

During first-quarter 2023, McDonald's reported adjusted earnings per share (EPS) of $2.63, surpassing the Zacks Consensus Estimate of $2.31 by 13.9%. In the prior-year quarter, MCD reported an adjusted EPS of $2.28.

Quarterly net revenues of $5,897.8 million beat the consensus mark of $5,576 million by 5.8%. The top line rose 4.1% year over year.

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At company-operated restaurants, sales were $2,224.3 million, down 3% year over year. The same at franchise-operated restaurants was $3,587.5 million, up 10% year over year.

Comps Details

In the quarter under discussion, global comps increased 12.6% compared with a rise of 11.8% reported in the prior-year quarter.

Strong Comps Across Segments

U.S.: During the first quarter, comps in the segment rose 12.6% year over year, while a gain of 3.5% was reported in the prior-year period. McDonald’s’ comps for the quarter benefited from a menu price increase, positive guest counts and marketing initiatives. This and continued digital and delivery growth contributed to the upside.

International Operated Markets: Comps in the segment increased 12.6% year over year compared with a gain of 20.4% reported in the year-ago quarter. MCD gained from strong comparable sales in Germany, the U.K., France, Australia and Canada.

International Developmental Licensed Segment: During the quarter, the segment’s comparable sales increased 12.6% year over year compared with a rise of 14.7% reported in the year-ago quarter. McDonald's gained from robust performance in Japan.

Operating Highlights & Expenses

During the first quarter, McDonald’s total operating costs and expenses came in at $3,365.4 million compared with $3,353 million reported in the prior-year quarter.

During the quarter, operating income increased 10% year over year to $2,532.4 million. Net income during the quarter totaled $1,802.3 million, up 63% from $1,104.4 million reported in the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, McDonald's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise McDonald's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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